Welcome to the Jackson Walker's ART of Franchising newsletter. As always, our intention is to provide you with timely and easy-to-read franchise advice, reminders and tips, so that, as industry leaders, your knowledge of franchising will be continually expanding.
National Franchise Expansion – Minimizing Risks
Many of my clients have implemented national expansion plans. By doing so, they have certainly increased their pool of prospective franchisees. However, expansion that can take a Franchisor to markets that are geographically challenging and culturally different, can be risky. There are added costs to consider, as well as a learning curve relative to consumer tastes/expectations and choosing good locations, among other things. So, what are some suggested strategies to minimize the risks and reap the rewards of a national expansion program?
First, it is important that you determine specific target markets for expansion. Allowing prospect interest to determine which markets you enter can backfire. Taking a more proactive role in analyzing the viability of certain markets, and then targeting the markets that meet your criteria is a smart strategy.
In order to determine the viability of certain markets, I recommend obtaining not only demographic information, but also psychographic information on these areas. Generally speaking, this information can tell you if enough of your typical customers live and work near the considered markets. There are companies that can provide this type of information about markets, trade areas and specific sites, that is nothing less than incredible.
Secondly, it is important to consider the number of units you need in each of these targeted markets to obtain the kind of critical mass that will result in efficiencies and economies of scale your franchisees will expect, such as:
Distribution efficiencies (more units results in volume buying power, reduced costs and uniformity of products).
Marketing efficiencies, (more units results in increased brand recognition and lower unit advertising costs).
Operational support efficiencies, (more units results in your ability to cost effectively provide greater franchisee on-site support and assistance).
The obvious goal for each target market should be to reach this critical mass. To expand nationally without this goal can result in one-unit markets spread across the country in which you (i) have no buying power, (ii) have no ability to market effectively, and (iii) are paying a fortune to provide franchisee on-site operational support.
Finally, once your target markets have been determined, it is critically important to insure compliance with applicable state laws. Prior to offering and granting franchises in the following states you must make sure you have registered in those states which require franchise registration, and that you have submitted the necessary filings in those states which require certain franchise related filings.
These states require pre-sale registration of your Franchise Disclosure Document:
Indiana (Filing Only)
South Dakota (Filing Only)
Wisconsin (Filing Only)
Additionally, the states of Connecticut, North Carolina, South Carolina and Maine require registration if you do not own a federally registered trademark.
These states require certain franchise related filings:
While tedious, the consequences for not complying with the required state registrations and filings are severe. I strongly recommend that you engage a competent franchise attorney to make and maintain such registrations and filings.